assessing the linkages between economic competitiveness and property market transparency

ASSESSING THE LINKAGES BETWEEN ECONOMIC COMPETITIVENESS AND

PROPERTY MARKET TRANSPARENCY

PROFESSOR GRAEME NEWELLUniversity of Western Sydney

(g.newell@uws.edu.au)

JUN

E

2009

INTERNATIONAL PROPERTY INTERNATIONAL PROPERTY INVESTMENT CONTEXTINVESTMENT CONTEXT

Global listed property: $1.0 trillion Global REITs: $361 billion

- US:51.1% - Australia: 10.2%

- Europe: 21.8% - Asia: 12.4%

INTERNATIONAL PROPERTY INTERNATIONAL PROPERTY INVESTMENT ACTIVITYINVESTMENT ACTIVITY

2007: $1.072 trillion - domestic @68% - cross-border @32% 2008: $517 billion - domestic @69% - cross-border @31% 2008 cross-border investment - US: 9% - Australia: 17% - Europe: 47% - UK: 38% - Germany: 58% - France: 48% - Netherlands: 23% - Italy: 36% - Asia: 27% - China: 25% - Japan: 23% - Singapore: 50%

2007 GLOBAL PROPERTY 2007 GLOBAL PROPERTY TRANSACTIONS TRANSACTIONS

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2008 GLOBAL PROPERTY 2008 GLOBAL PROPERTY TRANSACTIONSTRANSACTIONS

Source: Real Capital AnalyticsSource: Real Capital AnalyticsS

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INTERNATIONAL PROPERTY INTERNATIONAL PROPERTY INVESTMENT REQUIREMENTSINVESTMENT REQUIREMENTS

Accurate market and financial information Reliable performance benchmarks Enforceable contracts and property rights Clarity regarding taxation and regulation of property Fair treatment in transaction process Ethical standards amongst professionals hired to

transact business Overall: property market transparency is key issue

PREVIOUS INTERNATIONAL PREVIOUS INTERNATIONAL PROPERTY RESEARCHPROPERTY RESEARCH

Portfolio diversification benefits of international property - Bond - Hoesli - Ling

Regional diversification benefits; eg: Asia

- Bond - Eichholtz Property market convergence/integration; eg: Europe

- McAllister - Lizieri - Bardham Property market maturity/transparency

- Chin - Brounen - Newell

Emerging property markets; eg: Eastern Europe, Africa, South America, Asia

- Adair - Lim

PREVIOUS INTERNATIONAL PREVIOUS INTERNATIONAL PROPERTY RESEARCHPROPERTY RESEARCH

Determinants of international property performance- eg: returns, rents

- De Wit - Hamelink

Next step: link property market maturity/transparency with determinants

Newell (2008): 54 countries @ 2006

- regions - mature/emerging

- linkages

PURPOSE OF PAPERPURPOSE OF PAPER

Assess linkages between property market transparency/maturity and various economic, social, institutional and technology competitiveness indicators over 71 countries

Identify key linkages/factors: 2008

Compare linkages across regions and for mature/emerging markets

Expanded # countries @ 2008

METHODOLOGYMETHODOLOGY

Property market transparency: JLL Economic, social, institutional, technology,

competitiveness indicators: WEF, TI Linkages 71 countries overall Data: largely opinion-based surveys

- JLL - WEF - TI

JLL REAL ESTATE JLL REAL ESTATE TRANSPARENCY INDEXTRANSPARENCY INDEX

82 countries• China, India, Russia @ Tier 1, 2, 3

Real estate transparency index: 1 to 5 Criteria (5); 15 elements assessed

• availability of investment performance indices• availability of market fundamentals data• listed vehicle financial disclosure and governance• regulatory and legal factors• professional and ethical standards

Transparency index @ 1999, 2001, 2004, 2006, 2008

JLL REAL ESTATE JLL REAL ESTATE TRANSPARENCY INDEXTRANSPARENCY INDEX

5 categories re: real estate transparency• highly transparent: 1.00 to 1.49 (10 countries)• transparent: 1.50 to 2.49 (16 countries)• semi-transparent: 2.50 to 3.49 (25 countries)• low transparency: 3.50 to 4.24 (26 countries)

• opaque: 4.25 to 5.00 (5 countries) Development of real estate transparency index

JLL REAL ESTATE JLL REAL ESTATE TRANSPARENCY INDEXTRANSPARENCY INDEX

2008 improvements• Countries: 56 → 82• Tiers 1, 2, 3 @ China, India, Russia• Middle East coverage: 3 → 11• Eastern Europe, North Africa coverage• Regional sub-indices: 5 per region• Composite index Vs classic index

Table 1: JLL global real estate transparency index: 2008

Highly transparent: Australia, US, New Zealand, Canada, UK, Hong Kong, Netherlands, Sweden, France,Singapore

Transparent: Finland, Germany, South Africa, Denmark, Austria, Ireland, Belgium, Spain, Switzerland, Norway, Italy, Malaysia, Japan, Portugal, Czech Republic, Poland

Semi-transparent:Hungary, Israel, Taiwan, South Korea, Slovakia, Chile, Greece, Russia (Tier 1, 2, 3), Philippines, Brazil, Thailand, India (Tier 1, 2), China (Tier 1), Dubai, Bahrain, Bulgaria, Ukraine, Romania

Low transparency:China (Tier 1, 2, 3), India (Tier 3), UAE, Costa Rica, Indonesia, Turkey, Peru, Colombia,Argentina, Uruguay, Saudi Arabia, Panama, Vietnam, Abu Dhabi, Qatar, Kazakhstan, Oman

Opaque:Belarus, Sudan, Syria, Algeria, Cambodia

Source: JLL (2008)

REAL ESTATE TRANSPARENCY REAL ESTATE TRANSPARENCY CLASSIC SCORE ANALYSISCLASSIC SCORE ANALYSIS

WEF GLOBAL WEF GLOBAL COMPETITIVENESS REPORTCOMPETITIVENESS REPORT

134 countries re: global competitiveness: 2008-09 1 to 7 score; 120 criteria assessed Indicators: categories/sub-categories

-global competitiveness -institutions

- infrastructure -macroeconomy

-health and primary educ. - higher education and training

- market efficiency - technology

- business sophistication - innovation

- environment -basic indicators

WEF GLOBAL WEF GLOBAL COMPETITIVENESS REPORTCOMPETITIVENESS REPORT

# respondents = 12, 297 @ various institutions- Australia: 83 - US: 200 - UK: 63- Japan: 148 - Germany: 71 - France: 105

Global competitiveness rating#1: US #2: Switzerland #3: Denmark#4: Sweden #7: Germany #12: UK#16: France #18: Australia #30: China#50: India #51: Russia #62: Hungary

#68: Romania

TRANSPARENCY TRANSPARENCY INTERNATIONAL CORRUPTION INTERNATIONAL CORRUPTION

PERCEPTION INDEX PERCEPTION INDEX

180 countries re: corruption @ 2008 1 to 10 score ADB, AfDB, EIU, World Bank etc. 3 – 10 surveys per country #1: Denmark, Sweden, NZ #4: Singapore

#9: Australia #12: Hong Kong #14:Germany

#16: UK #18: Japan, US

#23: France

ANALYSISANALYSIS 71 countries @ 2008; omissions Property market transparency @ JLL Linkage to 16 economic, social, institutional, technology

competitiveness indicators▪15 @ WEF ▪ 1 @ TI

Global competitiveness InstitutionsInfrastructure MacroeconomyHigher ed. and training Labor market efficiencyTechnology readiness Business sophisticationInnovation Fin. markets sophis.

Foreign ownership Soundness of banks Local stock market regulation Property rights GDP per capita Corruption

LINKAGE ANALYSESLINKAGE ANALYSES

Global (# countries = 71) Regional

- Asia (13) - Europe (31) - Americas (13)- Asia Pacific (17) - Eastern Europe (9) - Middle East (9)

Maturity/transparency- transparent (26) - less transparent (45)

Europe - mature (17) - emerging (14)

Asia - mature (4) - emerging (9) Asia-Pacific

- mature (8) - emerging (9)

Correlations; step-wise regression re: identify key factors

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Model Smallest correlation Largest correlation # correlations # significant

> 0.50 correlations

Global (71) 0.32 .85 (technology) 94% (15/16) 100% (16/16)

Asia (13) 0.54 .90 (financial market sophist.)

100% (16/16) 100% (16/16)

Europe (31) 0.26 .83 (global competit., business sophist.)

81% (13/16) 94% (15/16)

Americas (13) 0.19 .95 (technology) 88% (14/16) 88% (14/16)

Asia-Pacific (17) 0.43 .92 (corruption) 94% (15/16) 94% (15/16)

Eastern Europe (9) 0.01 .61 (macroeconomy) 6% (1/16) 6% (1/16)

Middle East (9) 0.01 .79 (securities market regulations)

38% (6/16) 19% (3/16)

Model Smallest correlation

Largest correlation # correlations # significant

> 0.50 correlations

Transparent (26) 0.29 .70 (financial market sophist.)

56% (9/16) 75% (12/16)

Less transparent (45) 0.19 .71 (higher education & training)

25% (4/16) 75% (12/16)

Europe: mature (17) 0.18 .71 (financial market sophist., technology)

88% (14/16) 88% (14/16)

Europe: emerging (14) 0.23 .59 (higher education & training)

19% (3/16) 19% (3/16)

Asia-Pacific: mature (8) 0.04 .86 (banks) 56% (9/16) 44% (7/16)

Asia: mature (4)

Asia: emerging (9)

0.37

0.05

.99 (foreign ownership)

.87 (business sophist.)

75% (12/16)

88% (14/16)

50% (8/16)

75% (12/16)

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Model Smallest correlation

Largest correlation # correlations # significant

> 0.50 correlations

Americas: emerging (11) 0.21 .69 (global competit.) 50% (8/16) 44% (7/16)

JLL: highly transparent (10) 0.02 .70 (foreign ownership)

6% (1/16) 6% (1/16)

JLL: transparent (16) 0.03 .73 (banks) 63% (10/16) 75% (12/16)

JLL: semi-transparent (21) 0.02 .40 (GDP per capita) 0% (0/16) 0% (0/16)

JLL: low transparency/opaque (24)

0.12 .74 (securities market regulations)

44% (7/16) 63% (10/16)

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Model Variables included Adj. R²

Global (71) Financial sophistication, higher education & training, macroeconomy

0.77

Asia (13) Financial sophistication, corruption 0.87

Europe (31) Technology 0.69

Americas (13) Technology 0.90

Asia-Pacific (17)Eastern Europe (9)

Middle East (9)

Global competitiveness, banks, corruption

Macroeconomy

Securities market regulation

0.93

0.28

0.57

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Model Variables included Adj. R²

Transparent (26) Financial sophistication 0.47

Less transparent (45) Higher education & training, banks, institutions

0.59

Europe: mature (17) Financial sophistication, market efficiency, technology

0.79

Europe: emerging (14) Higher education & training 0.29

Asia-Pacific: mature (8)

Asia: mature (4)

Asia: emerging (9)

Banks, GDP per capita

Foreign ownership

Business sophistication

0.88

0.97

0.72

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Model Variables included Adj. R²

Americas: emerging (11) Global competitiveness, institutions 0.65

JLL: highly transparent (10) Financial sophistication, foreign ownership

0.67

JLL: transparent (16) Banks 0.50

JLL: semi-transparent (21) Business sophistication, banks, innovation, foreign ownership

0.73

JLL: low transparency/opaque (24) Securities market regulation 0.52

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INTERNATIONAL PROPERTY INTERNATIONAL PROPERTY INVESTMENT IMPLICATIONSINVESTMENT IMPLICATIONS

Environment of international property investment re: global financial crisis impact

Focus on property market maturity/transparency Linkages to economic, social, institutional and

technology factors Regional differences Mature Vs. emerging market differences Consistency of linkage indicators?

INTERNATIONAL PROPERTY INTERNATIONAL PROPERTY INVESTMENT IMPLICATIONSINVESTMENT IMPLICATIONS

Future developments re: importance Eg: EPRA emerging markets index @ 2008

- # countries = 22 - # property companies = 124 @ $81 billion

- Thailand, China, Malaysia, Brazil, Russia, Indonesia, India included

- Asia Pacific @ 52%, Americas @ 19%, EMEA @29%

Eg: IPD global property index Eg: IPD country/regional indices

• broader coverage